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Amazon.com Inc.'s Voice-Controlled Speakers Are Holiday Hits

If you were thinking about buying one of Amazon.com's (NASDAQ:AMZN) new voice-activated speakers on the company's website for a Christmas gift, it's too late. Barring some in-store inventory at the company's three bookstores, its 30 pop-up store locations at shopping malls, and some other bricks-and-mortar retailers, the Echo devices are completely sold out. The hot demand for the product speaks to the nascent segment's potential and bodes well for Amazon and Alphabet's (NASDAQ:GOOG)(NASDAQ:GOOGL) bets on the new product category.

The Echo Dot. Image source: Amazon.com.

High demand depletes inventory

Amazon's Echo, the company's flagship voice-activated speaker, won't be in stock again until the end of the year, according to the company's website at the time of this writing. And the Echo Dot, which sports the same brains as the Echo but is meant to be paired with external speakers via Bluetooth or a headphone jack, won't be in stock until a few days after Christmas.

According to a statement Amazon provided to The Motley Fool, the shortage of Echo devices seems to be related to higher-than-expected demand, not unforeseen supply challenges.

"Customer response to Echo and Echo Dot has been incredibly positive, and unfortunately we are sold out on Amazon due to high demand," said an Amazon spokeswoman. But for customers who want to order an Echo device on the company's website, "customers can order now to reserve their spot in line," the spokeswoman said.

Another reason to conclude that demand -- and not supply -- is the reason for a shortage of Amazon's Echo and Dot devices is the fact that Amazon significantly discounted the smart speakers during the holidays. Its Echo, which normally retails for $180, was priced at $140. And Amazon's Dot was $10 off, bringing the price to an aggressive $40. It's possible Amazon wouldn't have priced the devices so low if it had correctly forecast demand.

A promising market

With Echo devices apparently as hot as ever with customers two years after Amazon launched its first smart speaker, the nascent market is looking promising.

Amazon, of course, isn't the only tech giant that wants in on this market. Heading into the holidays, Alphabet launched its own AI-powered speaker, called Google Home, aimed at competing with Echo. Priced at $129, Home undercuts even Amazon's discounted price for its flagship Echo device. Alphabet's compelling price for its new smart speaker is a major endorsement for the new product segment.

Google Home. Image source: Alphabet.

Notably, it's not necessarily a surprise that Echo devices are selling well ahead of Christmas. The company had already proved there's demand for smart speakers before the holidays, selling a total of about 5.1 million of the devices since Amazon launched Echo in late 2014. Furthermore, not only was Amazon's second-generation Dot, which launched on Sept. 14, a major upgrade over the first-generation Dot, but Amazon priced it lower.

Further illustrating the popularity of Echo and Dot, Amazon provided a rosy update on the devices' sales after Black Friday weekend and Cyber Monday. The company said both the Echo and Dot were among the best-selling products from any manufacturer in any category on its website. Further, Amazon said Cyber Monday's Dot sales were up more than 700% compared to Cyber Monday in 2015.

Could Amazon's smart speakers just be the tip of the iceberg for this fast-growing product segment? Perhaps.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares) and Amazon.com.